nevergiveup Posted April 16, 2009 Share Posted April 16, 2009 I think the government may have quashed any desire my son might have had to go into business for himself. Last summer, he wanted to earn money but was too young to be hired for a "real" job, so a friend suggested he grow and sell cut flowers for a farmers' market since the previous flower vendor quit. He was 14 when he started the business and had just turned 15 when the first market opened. Fast forward to this year and doing his taxes. He never earned enough to have to pay an income tax, but, since this was a "business" anything earned over $400 is subject to self-employment tax of 15%. So, he had to pay that in addition to filling out: 1040 long form Schedule SE Schedule F form 4562 standard deduction worksheet section 179 state income taxes state personal property taxes form 103 and 104 plus calculating and submitting sales tax monthly Quite a lot for a kid who just wanted to earn some money! What do you think? Quote Link to comment Share on other sites More sharing options...
LaxMom Posted April 16, 2009 Share Posted April 16, 2009 Um, as a full-time student and dependent, isn't he exempt from taxes? (I realize it is entirely possible that I've missed a tax-code update in the 20-odd years since I was a tax-exempt dependent...) Except that I seem to remember a discussion with a financial planner more recently (not actually recently, but in the past few years) about dependent minors now being responsible for personal income when it exceeds $10,000... and that's a whole lotta cut flowers! Quote Link to comment Share on other sites More sharing options...
Snickerdoodle Posted April 16, 2009 Share Posted April 16, 2009 That sounds like a great education in how the real world works. I say keep it up! Quote Link to comment Share on other sites More sharing options...
nevergiveup Posted April 16, 2009 Author Share Posted April 16, 2009 Nope--I even called the IRS to find out. The self employment tax goes towards Social Security, medicare, whatever, and they reason that if they were working for someone else, that employer would have to withhold it so even though he is a minor and a dependent, he has to start paying into the system. Quote Link to comment Share on other sites More sharing options...
LaxMom Posted April 16, 2009 Share Posted April 16, 2009 Ooooooh. Wow. Makes you not even want to file. (Not in the illegal sense, of course... more in the "isn't $500 the threshold for filing" sense.) I mean, the paperwork effort exceeds the benefit, even from the IRS standpoint, I would think. Quote Link to comment Share on other sites More sharing options...
fivetails Posted April 16, 2009 Share Posted April 16, 2009 eh? I'm not sure I understand... he sold flowers at a flea market - and he's a kid. What's with the 'doing his taxes' thing? I've never known a kid with a cash job like babysitting, lawn cutting, pet sitting, or such doing income tax stuff... I sure didn't as a kid (babysitting, pet sitting, and strawberry picking) and would never expect that my starting-to-babysit dd12 would have to do that. (And she didn't with her newpaper route when she was 10) They're kids! It makes me think of having to file taxes on a lemonade stand or something. :tongue_smilie: Quote Link to comment Share on other sites More sharing options...
G5052 Posted April 16, 2009 Share Posted April 16, 2009 (edited) I have a side business myself, and the tax part of it makes me question it every year. I actually reoriented it several years ago because the bookkeeping was driving me bonkers (among other issues), and now I only have 3-4 transactions a month. I keep it up though because it pays for out co-op classes, field trips, and our one sport. Not big bucks at all, but we'd have to cut out all of that otherwise. I also have another part-time job as an employee, and frankly that's a lot easier in many ways, but they only have so much work for me. Ironically because I'm a low-wage state employee, I don't pay state taxes, but every year it's extra bother to get that done correctly, and one year I had to fight them because the state system wasn't set up right to handle that plus self-employment income. It couldn't "see" the two streams and flagged me as misreporting my state pay. I agree that it's crazy, but you have to do it! Edited April 16, 2009 by GVA Quote Link to comment Share on other sites More sharing options...
PiCO Posted April 16, 2009 Share Posted April 16, 2009 It makes me think of having to file taxes on a lemonade stand or something. :tongue_smilie: In my area, a girl had to pay vendor's fees, sales taxes, and income taxes on her lemonade stand. Quote Link to comment Share on other sites More sharing options...
nevergiveup Posted April 16, 2009 Author Share Posted April 16, 2009 Yeah--any kid with a lemonade stand who is in it to make money is considered to have a "business" whereby anything earned over $400 is subject to this self employment tax. My son sold over 750 bouquets (I helped make the bouquets and sell them but he did all the rest) and grossed almost $3900. He had a lot of expenses he took off but, if he had no expenses to claim, he would have had to pay over $550 in self employment tax. Still seems wrong to me... Quote Link to comment Share on other sites More sharing options...
Hillary in KS Posted April 16, 2009 Share Posted April 16, 2009 Yes. It's my understanding that even though many people/ children don't report income like that, they're supposed to. When I was employed in high school, I didn't have to pay taxes (beyond some basic payroll taxes, I think. It's been years.) , but I had to file every year. I was a 17 year old freshman in college. Because I had lived/worked in one state, and went to college/ worked in another state, I had to file in 2 states that year. I made $80 tutoring Latin last year. I had to fill out 3 extra forms. Yay. :glare: Quote Link to comment Share on other sites More sharing options...
Danestress Posted April 16, 2009 Share Posted April 16, 2009 Yeah--any kid with a lemonade stand who is in it to make money is considered to have a "business" whereby anything earned over $400 is subject to this self employment tax. My son sold over 750 bouquets (I helped make the bouquets and sell them but he did all the rest) and grossed almost $3900. He had a lot of expenses he took off but, if he had no expenses to claim, he would have had to pay over $550 in self employment tax. Still seems wrong to me... Does it seem wrong to you that the procedure and paperwork is so difficult, or does it seem wrong that kids have to pay taxes in the first place? Just curious. It sounds like your kid found a great way to make some money though! Kudos to him! Quote Link to comment Share on other sites More sharing options...
nevergiveup Posted April 16, 2009 Author Share Posted April 16, 2009 Danestress-- I guess both seem wrong. He is just a kid with ambition trying to make some money. The forms are so complex: trying to wade through all the instructions took more hours than I want to remember. Then, having to pay a tax when earnings are soooo far below the poverty level--how does anyone running their own business for a living and not making much, survive? Quote Link to comment Share on other sites More sharing options...
Danestress Posted April 16, 2009 Share Posted April 16, 2009 Danestress-- I guess both seem wrong. He is just a kid with ambition trying to make some money. The forms are so complex: trying to wade through all the instructions took more hours than I want to remember. Then, having to pay a tax when earnings are soooo far below the poverty level--how does anyone running their own business for a living and not making much, survive? Well, if he were an adult he would get to take a deduction for himself. Since you probably took a deduction for him yourselves, then he ends up paying taxes. Or is it different when you are self-employed? My Dad ran his own business and I am pretty sure he got to take deductions for family members. I always feel sort of bad about taking a deduction for my son (who just has a job - not a self-employed one) because it means he then has to pay taxes. But our bracket is higher, so it's better for us to take it. Here's an idea. If he put his earnings in an IRA, he could do that pre-tax. Of course, then he would wouldn't have the money to spend, but I think a kid of any age can fund an IRA. If he funded a Roth, then I think the money would later be available for education costs or buying a home, though I am not entirely sure. Something to think about. Quote Link to comment Share on other sites More sharing options...
elegantlion Posted April 16, 2009 Share Posted April 16, 2009 Danestress-- I guess both seem wrong. He is just a kid with ambition trying to make some money. The forms are so complex: trying to wade through all the instructions took more hours than I want to remember. Then, having to pay a tax when earnings are soooo far below the poverty level--how does anyone running their own business for a living and not making much, survive? As much as it bites, it's the reality of owning a business. my dh is self-employed and I absolutely despise all of the paperwork that goes into filing taxes. It's part of the price to pay for the freedom to be your own boss. :glare: Quote Link to comment Share on other sites More sharing options...
Carrie12345 Posted April 16, 2009 Share Posted April 16, 2009 My son sold over 750 bouquets (I helped make the bouquets and sell them but he did all the rest) and grossed almost $3900. He had a lot of expenses he took off but, if he had no expenses to claim, he would have had to pay over $550 in self employment tax. Still seems wrong to me... Danestress-- I guess both seem wrong. He is just a kid with ambition trying to make some money. The forms are so complex: trying to wade through all the instructions took more hours than I want to remember. Then, having to pay a tax when earnings are soooo far below the poverty level--how does anyone running their own business for a living and not making much, survive? ------ Quote Link to comment Share on other sites More sharing options...
PiCO Posted April 16, 2009 Share Posted April 16, 2009 Danestress-- I guess both seem wrong. He is just a kid with ambition trying to make some money. The forms are so complex: trying to wade through all the instructions took more hours than I want to remember. Then, having to pay a tax when earnings are soooo far below the poverty level--how does anyone running their own business for a living and not making much, survive? A lot of small businesses don't survive. Especially if they don't do enough tax research before they start. Businesses have to pass on all costs to the consumer, if they don't count all the taxes as an expense in their budget, they might not be pricing their goods or services correctly to cover expenses. I'm still reeling from the taxes I mailed in yesterday. Especially sandwiched between my property tax bills, which just increased dramatically due to a Mill Levy Override and Bond that passed last fall. Quote Link to comment Share on other sites More sharing options...
Nestof3 Posted April 16, 2009 Share Posted April 16, 2009 (edited) Danestress-- I guess both seem wrong. He is just a kid with ambition trying to make some money. The forms are so complex: trying to wade through all the instructions took more hours than I want to remember. Then, having to pay a tax when earnings are soooo far below the poverty level--how does anyone running their own business for a living and not making much, survive? See, this isn't about how much money he made -- it's about the fact that he has a business. If he had worked at McDonald's, McDonalds would have done all of the paperwork, matched the SS and MC, paid sales tax, and so on an no one would be the wiser. I hear your frustration, but honestly, that's part of the education about business ownership, and in my opinion, your son is not too young to be involved with that. That's business math in action. Being self-employed has opened up my eyes to so much more, and I understand and appreciate employers so much more than when I just worked for someone. But, I still cannot see him having to pay that much on $400. SS would be about $50 and MC about $11, but that may be less once business expenses are taken into consideration. Sales tax will go to quarterly or yearly because the amount is so small. And, if he already paid sales tax, he doesn't pay it again, but for future reference, he will have to show a tax exempt paper to the place he buys the seeds from, and then he collects the sales tax from the customer. Edited April 16, 2009 by nestof3 Quote Link to comment Share on other sites More sharing options...
nevergiveup Posted April 16, 2009 Author Share Posted April 16, 2009 Nope--I don't think he is too young to learn about business and taxes, either. It has been a real education for all of us. But he is selling flowers at a farmers' market, not running a corporation, and it shouldn't require the services of an accountant IMHO. Quote Link to comment Share on other sites More sharing options...
sandellie4 Posted April 16, 2009 Share Posted April 16, 2009 One of my daughters has an art business (she's 15), and she stashes everything away into a traditional IRA. She'll have to pay taxes on it someday, when she's old and she withdraws it, but starting it so early means that the money will have much more time to grow. Another option would be to start a Roth IRA, and she might do that at some point. Her tax bracket, of course, is really low, and the money could grow for years and years and then be withdrawn tax free when she's old. All the forms are a pain for her, but then I think taxes are way too complex for all of us. Not only are we paying taxes but we also have to spend hours and hours filling out paperwork. Taxes I can live with, but, sheesh, it would be nice if they would simplify it all somehow. Sandy Quote Link to comment Share on other sites More sharing options...
nevergiveup Posted April 16, 2009 Author Share Posted April 16, 2009 From what I understand (I am not an accountant) if your daughter has a business she still owes self employment tax on anything earned over $400. Self employment tax is independent of income tax. Kudos to your daughter for being so forward thinking regarding investing! Quote Link to comment Share on other sites More sharing options...
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